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Education and human capital

Education shows great resilience to shocks—labor demand for highly skilled workers has remained high in all kinds of economic conditions. Public policy for education and human capital includes increasing the economic and social returns on education, fostering greater educational attainment, encouraging social and economic mobility, and providing vocational education, training, and lifelong learning.

Cognitive skills are more relevant in explaining earnings,
socio-emotional skills in determining labor supply and schooling

Common proxies, such as years of education, have been shown to
be ineffective at capturing cross-country differences in skills acquisition, as well as the
role they play in the labor market. A large body of research shows that direct measures of
skills, in particular cognitive and socio-emotional ones, provide more adequate estimations of
individuals’ differences in potential productive capacity than the quantity of education they
receive. Evidence shows that cognitive skills in particular are quite relevant to explain
wages, while socio-emotional skills are more associated with labor force and education
participation decisions.

Payments at the time of marriage, which are
ubiquitous in developing countries, can be substantial enough to impoverish
parents. Brideprice and dowry have both been linked to domestic violence
against women, and inflation in these payments has prompted legislation
against them in several jurisdictions. Marriage payments are often a
substitute for investment in female human capital, so from a welfare and
policy perspective, they should be prohibited. This highlights the
importance of promoting direct economic returns over legal and customary
rights.

Standardized testing can create incentives to
manipulate test results and generate misleading indicators for public
policy

Standardized testing has become the accepted
means of measuring a school’s quality. However, the associated rise in
test-based accountability creates incentives for schools, teachers, and
students to manipulate test scores. Illicit behavior may also occur in
institutional settings where performance standards are weak. These issues
are important because inaccurate measurement of student achievement leads to
poor or ineffective policy conclusions. The consequences of mismeasured
student achievement for policy conclusions have been documented in many
institutional contexts in Europe and North America, and guidelines can be
devised for the future.

Historical slavery may be a driver of human
capital and its unequal racial distribution, with implications for education
and income inequalities

Income inequality is a critical issue in both
political and public debate. Educational attainment is a key causal factor
of continuing inequality, since it influences human capital accumulation
and, as a consequence, the unequal distribution of earnings. Educational
inequality displays a racial dimension that is particularly persistent and
difficult to eradicate through policy measures. Its roots lie in the
colonial institution of slave labor, which was widespread in the US and
Latin America up until the 19th century. However, the influence of slavery
differs significantly across countries and between regions.

In addition to the traditional education system
targeting children and youth, one potentially important vehicle to improve
literacy and numeracy skills is adult literacy programs (ALPs). In many
developing countries, however, these programs do not seem to achieve these
hoped for, ex ante, objectives and have therefore received less attention,
if not been largely abandoned, in recent years. But, evidence shows that
ALPs do affect other important socio-economic outcomes such as health,
household income, and labor market participation by enhancing participants’
health knowledge and income-generating activities.

Policymakers in many OECD countries are
increasingly concerned about high and rising inequality. Much of the
evidence (as far back as Adam Smith’s ) points to the importance of skills in tackling wage
inequality. Yet a recent strand of the research argues that (cognitive)
skills explain little of the cross-country differences in wage inequality.
Does this challenge the received wisdom on the relationship between skills
and wage inequality? No, because this recent research fails to account for
the fact that the price of skill (and thus wage inequality) is determined to
a large extent by the match of skill supply and demand.

Promoting intergenerational mobility can make
societies more egalitarian

Income inequality has been rising in many
countries. Is this bad? One way to decide is to look at the change in
incomes across generations (intergenerational mobility) and, more generally,
at the extent to which income differences among individuals are traceable to
their social origins. Inequalities that reflect factors largely out of one’s
control—such as local schools and communities—require attention in order to
reduce income inequality. Evidence shows a negative association between
income inequality and intergenerational mobility. The debate on whether
community effects exert additional effects is still open.

Universal early education can be beneficial, and
more so for the poor, but quality matters

There is widespread interest in universal early
education, both to promote child development and to support maternal
employment. Positive long-term findings from small-scale early education
interventions for low-income children in the US have greatly influenced the
public discussion. However, such findings may be of limited value for
policymakers considering larger-scale, more widely accessible programs.
Instead, the best insight into the potential impacts of universal early
education comes from analysis of these programs themselves, operating at
scale. This growing research base suggests that universal early education
can benefit both children and families, but quality matters.

The success of universal preschool education depends crucially
on the policy parameters and specific country context

Since the 1970s, many countries have established free or highly
subsidized education for all preschool children in the hope of improving children’s learning
and socio-economic life chances and encouraging mothers to join the labor force. Evaluations
reveal that these policies can increase maternal employment in the short term and may continue
to do so even after the child is no longer in preschool by enabling mothers to gain more job
skills and increase their attachment to the labor force. However, their effectiveness depends
on the policy design, the country context, and the characteristics of mothers of
preschoolers.

Internationally, there has been a student
financing revolution towards income contingent loans

Around nine countries currently use a national
income contingent loan (ICL) scheme for higher education tuition using the
income tax system. Increased international interest in ICL validates an
examination of its costs and benefits relative to the traditional financing
system, government-guaranteed bank loans (GGBLs). Bank-type loans exhibit
poor economic characteristics: namely, repayment hardships for the
disadvantaged, and default. This damages credit reputations and can be
associated with high taxpayer subsidies. ICLs avoid these problems, but
effective collection of debt requires a sophisticated mechanism.